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Argentina Country Risk Report 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views A substantial uptick in investment is likely following a devaluation and liberalisation of Argentina’s external accounts. Nonetheless, this is mot likely to begin until H216, leading to a contraction in real GDP as private consumption declines with real purchasing power. This will ensure the Argentine economy contracts this year. Thereafter, Argentina will enter a period of robust growth as foreign investment flows into the country. The government of president-elect Mauricio Macri will move to substantially reduce the country’s budget deficit in te coming years by reducing government subsidies on electricity. This will serve to temper inflationary pressures as the government can move away from printing new pesos to finance its substantial deficit. Nonetheless, subsidy reduction will be gradual to limit the shock to consumers’ disposable incomes.

Table Of Contents

Argentina Country Risk Report 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Sharp Adjustments Point To Rising Investment In H2168
Argentine real GDP growth will accelerate starting in H216 on the back of rising investment in sectors liberalised by President Macri
Domestic businesses will invest in expanding housing capacity, while foreign firms will look to acquire assets in Argentina's power
sector
GDP By Expenditure Outlook 9
TABLE: 10-YEAR GDP FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS9
Fiscal Policy And Public Debt Outlook 10
Deficit Set To Narrow On Subsidy Reduction10
Argentina's fiscal deficit is set to modestly narrow in 2016 on the back of tempered expenditure growth compared to 2016 Even still,
revenue growth will only keep pace with inflation, as the government's tax take is weighed on by a recession
TABLE: GROSS FIXED CAPITAL FORMATION FORECASTS10
TABLE: NET EXPORT FORECASTS10
Structural Fiscal Position 11
External Trade And Investment Outlook 12
Reform Will Drive Improving External Accounts12
Argentina's current account will return to surplus in 2016, as policy reforms enacted by President Maurico Macri drive export growth
and undermine imports In the coming years, foreign investment into the country will increase as reform creates opportunities in energy,
power and agriculture
Outlook On External Position 14
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE14
TABLE: TOP FIVE GOODS IMPORTS IN 201414
TABLE: TOP FIVE GOODS EXPORTS IN 201415
Monetary Policy 16
Central Bank Independence Will Bolster Inflation-Fighting Credentials16
The administration of Mauricio Macri will move to bolster the Banco Central de la República Argentina's independence after years
of executive interference in monetary policy Coupled with recent steps to improve the reporting of inflation data, this will bolster the
BCRA's inflation fighting credibility, leading to a long-term decline in inflation expectations
Currency Forecast 17
ARS: Market Sentiment Will Drive Near-Term Depreciation17
The Argentine peso will steadily depreciate over the coming months as domestic firms increase spending on intermediate goods needed
for production, boosting dollar outflows Over a longer time horizon, the peso will stabilise and gradually appreciate on the back of rising
foreign direct investment, especially into the power and energy sectors
TABLE: BMI CURRENCY FORECAST17
Regional Economic Outlook 18
Little Respite For Sovereign Risk In 201618
Sovereign risk will remain high in Latin America's major economies in 2016 as low commodity prices constrain government inflows,
leading to widening fiscal deficits and increased government borrowing That said, robust macroeconomic buffers will limit the risk of
imminent debt distress for the majority of countries
TABLE: KEY MACROECONOMIC INDICATORS - 2016 FORECASTS and TREND COMPARED WITH 2014 19
Chapter 2: 10-Year Forecast 23
The Argentine Economy To 2025 23
Long-Term Growth Driven By Reform Agenda23
Argentina's real GDP growth will begin to accelerate over the coming five years, amid a gradual reversal of the interventionist policies
of President Cristina Fernández de Kirchner under the new government of Mauricio Macri These reforms will lead to robust growth
during the second half of our 10-year forecast, driven by rising natural gas production and stronger inbound investment as the policy
environment evolves in a more business-friendly direction
TABLE: LONG-TERM MACROECONOMIC FORECASTS23
Chapter 3: Political Outlook 27
SWOT Analysis 27
BMI Political Risk Index 27
Domestic Politics 28
Improving Legislative Dynamics Will Support Reform28
Argentine President Mauricio Macri will be able to implement the bulk of his reform agenda over the coming months, although he will
face resistance from opposition Senators and labour unions The development of fissures within the Kirchnerist opposition will support
the passage of key pieces of legislation
TABLE: POLITICAL OVERVIEW28
Long-Term Political Outlook 30
Post-2015 Election, Discourse Moves To The Centre30
Argentina scores above the Latin America n average in our Long-Term Political Risk Index, but continued stability hinges on the
government's ongoing policy pivot towards more market-friendly policies While the election of Mauricio Macri is set to usher in a more
reform-minded government, we highlight several risks that could threaten the country's multiyear political outlook
Chapter 4: Operational Risk 33
SWOT Analysis 33
Operational Risk Index 33
Operational Risk 34
TABLE: OPERATIONAL RISK34
Trade Procedures And
Governance 35
TABLE: ARGENTINA EXPORT AND IMPORT DOCUMENTS35
TABLE: ARGENTINA TRADE PROCEDURES BREAKDOWN35
TABLE: LATIN AMERICA - TRADE PROCEDURES AND GOVERNANCE RISK 36
Vulnerability To Crime 37
Chapter 5:BMI Global Macro Outlook 41
Global Macro Outlook 41
Tail Risks Mounting Amid Sub-Par Growth41
TABLE: GLOBAL ASSUMPTIONS41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %42
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %43
TABLE: MACROECONOMIC DATA and FORECASTS45

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